Sfera Legal Blog

Family or Business?: The Key Question

There is no need for complex and technical terminology to define what a family business is. Essentially, the core element of the figure is in the interplay of the words that make up its denomination: family and business. A family business is an organization that belongs to a group of individuals related by ties of kinship. These individuals, in turn, should have significant influence over the management, control and development of such.

Surprisingly, this interrelationship as fundamental characteristic of a family business, represents also its mayor obstacle. In Latin America 90% of all businesses are family-owned and controlled; however, only 30% of these are duly transferred to the second generation. These statistics are alarming, and the root of the problem seems to be in the proper management of the elements that compose the figure. How to interlace family and business, properly? That seems to be the ultimate challenge of a family business. The coexistence of such crucial entities, with -in occasions- conflicting interests, make a family business an environment prone to conflict.

Certainly, preventive medicine is the best medicine. Costa Rican law provides a series of tools that contemplate and deal with differences that may arise in a family-business context, before they happen. However, these legal instruments must go hand in hand with a clear and orderly line of thought of the family-business group. The key to the successful management of a family business starts with the differentiation, when acting, of the field that is being affected and the element of the family business that is at stake.

In this sense, when in doubt, whoever is acting must question: Am I making a decision within a strictly family environment? If so, there will be feelings and personal interests involved. In this case, it is appropriate to value and consider what all members of the family group are thinking and how they feel. On the other hand, will my decision affect the company, directly? On these terms, the interests of the business, as such, must prevail; the ultimate goal of the company: its proper functioning, steady growth and continuity over time. All commitments and emotional ties between members of the family group must be set aside.

By its nature, the organizational form of a family business, entails the encounter and entwine of the family and business spheres. Hence, the difficulties -as well as the benefits- that go with the figure. The first step towards success is, precisely, in finding a balance between family interests -from an axiological perspective-, and those purely economic interests of the family group.

In other words, the proper management of a family business involves a healthy interaction between the elements that comprise it; these being: family and business. However, all family members must clearly recognize that there is a line -although, thin- that separates such fields. The success of a family business lays in acknowledging the existence of such line, and learning to respect its limits.